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Coevolving Innovations web site by David Ing.

Event sponsors:

Institute of Management, Innovation & Organization
(IMIO),

Haas School of Business, UC Berkeley

The Information School at UC Berkeley

Citizens for IT Research in the Interest of Society

California Management Review

Finnish Funding Agency for Technology and Innovation - Tekes

Intro by Henry (Hank) Chesbrough

David Teece, known for dynamic capabilities

Also own consulting business

[David Teece]

Services sector

Will focus on professional services, which he does as a
hobby

What's different?

Basis of competitive advantage has changed

Not managing tangibles, managing intangibles

Competition for intermediate goods, final goods,
competitive markets

Can fall into the zero profit trap

Want better than competitive return, which you could be
passive investment

Aren't markets for intangibles

Know-how, capabilities

Something isn't tradable, perfect markets don't exist, so
should be able to get competitive advantage

Style and genre of management is entrepreneurial management,
also called dynamic capabilities

Managing down through hierarchies isn't sufficient

1. Have to sense new opportunities -- somethings that
entrepreneurs do

2. Seize new opportunities

3. Reconfigure organization, because target will be
different today from tomorrow.

Started in 1997 with Teece, Pisano and Shuen paper

So what does this mean about the way a company is run?

Organizations complement markets

What is it that organizations can do that markets can't?

Markets coordinate things, where there is a price system at
work, meaning commodity markets

Otherwise, management has something to do: sensing, seizing
and reconfiguring

Sensing means seeing where the market is in disequilibrium, or
putting it into disequilibrium

Not new: Schumpeter

Putting together specialized or non-specialized asset in a
combination that others don't

Kirzner: entrepreneurs re-establishing equilibria

One way to sense is to do R&D, an exploratory
activity

Chesbrough's Open Innovation says that innovation doesn't
have to happen inside the firm

David Merry: companies good at showing innovation are good
at doing it: insourcing

In addition, have to be scanning the periphery of the
organization, it's part of how organizations are alerted to new
opportunities

Seizing

How do firms come to be great?

Some sense early, but then screw it up

Putting money down in a sensible away is crucial to
competitive advantage

Alfred Chandler looked at 100 years of history, to separate
sheep from goats.

Companies that didn't just see the opportunity, but were
willing
to put their money behind it, to building manufacturing, org hierarchies

Important investments must be made

Firms good at this do better

When world changes, have to reconfigure

Path dependence

More than adaptation and response, it'shaping markets

Took 25 years to learn this: economists say
markets are exogenous to companies

More often, it goes the other way, that companies shape
markets

e.g. Microsofts of the world shape markets, and determine
the competitive

What pages of the textbook do you have to pull out to see
what's happening in the global market?

Reconfiguring the business model

Took 25 years to learn this, learned it from Henry
Chesbrough

e.g. Dell Computer, new business models with new business
methods to back them up

In a world of open innovation, there's increasing advantage
to getting the business model right

How does this play out around talent and services?

Expert talent, as in any high-end organization, is required

e.g. software, the top 5% of code writers do 90% of the
creativity

U.C. Berkeley: 90% of the research comes from 10% of the
people

How to manage top talent? What do they need, and
what don't they need?

They want greater autonomy, which requires greater
accountability

Command and control structures won't work

Role of management is to create new structures that provide
greater autonomy, and then orchestrate: make individual
talent
more productive in teams

How do you do this where traditional management doesn't work?

Peters, 1993: Today's professional services firm
is the best model for tomorrow's organization in any industry

They're built around intangibles

Look at the literati: high-end educated people, who provide a
lot of the talent to create new products and services

International trade, open markets: creates more of a
winner-take-all economy

They solve complex problems

Assumptions about what makes literati tick:

They're worthy of trust

They like they work (sometimes too much)

They have important non-pecunary gogals

...

Can team with highly centric, egotistical people

Compare traditional teams with virtuoso teams

Think of organizing a Broadway show: a few highly
talented actors, others not so talented, all choreographed

Need to have the highly talented and talented recognized

Don't take substance over form

Satisfy highly sophisticated clients

How is this organization different from a collection of
individuals?

Sometimes not, but it can be

Can bring it together, brand it

Involves building co-dependencies

Will retain people if have some individual professional
freedom, and combine them with people who have complementaries

Collective brand, can achieve common goals

Leadership?

Can't run highly centralized model

Got centralized from army, church

Weren't hierarchies in business until had them in government

Arthur Andersen accounting founded in 1920s in the General
Motor model

Could have done this differently

Model probably needs to be more decentralized

Open and transparent incentive system

Some metrics-driven capabilities and rewards

Contrast expert services model with industrial model

Decentralized

Persuasion

...

Service innovation requires new knowledge

It requires managing intangibles

Starting in a game where there isn't as much foundation

Talent is scarce, have to build it, can't buy it

Have to move to dynamic capabilities

[Questions]

Metric-based compensation, like to paid for what I accomplish.
How well can it be assessed? e.g. lawyer that does
a good
case, but loses

Have to inject some market rationality

If lead partner does a bad job, not only internal
sanctions, will have some external

Requiring metrics

If you don't have metrics base, then have to set up a
compensation committee, then there will competition to be on that
committee; and then those who aren't on the committee lobby those who
are, which is really inefficiency

Oriented towards influencing

Have to avoid, it's how politicizing happens

Want them to kiss up to customer, not internal

External deficiencies easier to deal with than internal

Juniors at piece rate. At senior levels, rainmakers
take out what they're worth to another firm

Being under that brand has benefits that another brand
doesn't

Fundamentally a race to build brand and complementariness

Stop people from moving?

Incentives are necessary but not sufficient

Culture, values, leadership

Knowledge management. Where does trust play?

Multiple ways

Individual has to trust the organization to do the right
thing

Organization has to trust individual

Individuals have to trust others, which requires norms

Building trust with heterogeneous talent is tough

It sometimes takes 10 years to get someone to trust an
organization

A manager can easily under 5 to 10 years of work

Haven't done as much research into trust as would like,
hard to measure

Dynamic capabilities, but where does the customer come to
play? In services, co-creating of value.

Haven't thought of this

Hank Chesbrough: professional services requires integration
with a customer more than others

Not just 1-800 number

Quasi-joint ventures

Opportunity to sense the marketplace, as close to customer

In seizing, desire for joint ventures

See this in computer services business, particularly
hardware and software

Some relevance, haven't thought it all of the way through

Few people in an organization can be described as virtuosos.
Yet 80% of the economy is services. So how to apply this idea
to
the larger services economy

Things that are not virtuoso are on the way to India

Virtuoso companies will stay in high-wage countries, that's
where the customers are.

Not many people are virtuoso, but that's where the value is

What's a virtuoso? One company has 2 people, one driving the
truck
and the other supervising; the other has one person doing everything

Virtuoso needs to adapt

Non-virtuoso can be given the book and guide

Business orchestration, combined with virtuosity.
Orchestration in cultures. Experience: in some cultures, time
is
absolute, can fix dates in advance.

Haven't thought about this

Time element is important

Virtuoso teams operate on spontaneity

On the other hand, still need to perform when the curtain
comes down

In law firms, have to show up at court

Have to back off a little bit in terms of organization,
virtuoso teams need some basic project management skills

Talent motivated by challenge, that could be a deadline

My organization missed 4Q last year, because didn't have
the platforms in place

As an economist, figure that people with right incentives
will work it out

But need project management skills

Have a revised journal article on strategic management, in
Strategic Management Journal

Used to have entrepreneurial management, doesn't just mean
being intrapreneurial: have to set up supplier arrangements

Work with Peter Grindley: hierarchy upside down, the job of
top
managers isn't just administration down, it's managing externally that
is important

You wouldn't pick this up in the Haas School, where
management is down rather than out sideways

COO does down

CEO does external stuff

University example. We don't have these incentive
models in universities and government

We're getting them in this university, Berkeley was one of
slowest to move

It has to come

It won't happen in public sector, and the public sector
will continue to underperform

In organizations that need to compete -- governments don't
have to compete -- it will happen

In coopetition and two-sided markets?

New paper deals with these

The way value is created, where intangibles are hard to
trade, is putting specialized assets together intangibles

Markets can't put together idiosyncratic, non-tradeable
assets

In dynamic capabilities, try to put a role of managers into
the economic system

Economic textbooks only talk about principals and agents,
not managers